Developing countries are facing mounting pressure to protect vulnerable households as rising debt-servicing costs, expensive energy and worsening climate conditions threaten to deepen poverty and weaken government spending on essential services.
A new analysis by the United Nations Development Programme (UNDP) warns that governments are running out of fiscal space to shield citizens from rising living costs, forcing difficult choices between supporting struggling households and maintaining long-term development investments.
The report, No Time to Recover: Compounding Crises, Depleted Fiscal Buffers and What It Means for Developing Economies, published on October 11, 2026, comes ahead of the International Monetary Fund and World Bank annual meetings in Bangkok, Thailand.
According to the analysis, the median developing country now spends approximately 9.5 per cent of government revenue on interest payments, the highest share in 25 years and more than three times the proportion spent by high-income countries.
The growing debt burden is diverting resources that could otherwise support healthcare, education and social protection programmes.
Borrowing conditions are also becoming more expensive. US 10-year Treasury yields have reached 5.3 per cent, their highest level since 2002, while 10-year government bonds in median weak-credit countries are yielding around 9 per cent.
Higher international borrowing costs can make it more expensive for developing economies to refinance existing debt or secure new financing, further restricting their ability to respond to economic shocks.
At the same time, oil prices have risen above US$100 per barrel for the second time since the Middle East conflict began, increasing pressure on fuel, transport and food costs.
Governments have used fuel subsidies, price caps, tax rebates and other measures to cushion consumers from these increases. However, UNDP warns that maintaining such interventions is becoming increasingly difficult as public finances deteriorate.
At current energy prices, global fossil fuel subsidies could exceed US$1 trillion this year, creating additional pressure on government budgets.
The situation is being compounded by an El Niño event that the report describes as potentially the most powerful on record, threatening harvests and food systems across Africa, Asia and Latin America.
Poor harvests and higher energy costs could reinforce one another, raising food prices while reducing the ability of low-income households to afford basic necessities.
UNDP estimates that approximately 130 million additional people worldwide could have been pushed into poverty this year if increases in food and energy prices had been fully passed on to consumers.
Sub-Saharan Africa, South Asia and East Asia are among the regions facing particularly severe consequences.
UNDP Administrator Alexander De Croo warned that the combined pressures were leaving millions of families with little financial protection against further price increases.
He said developing-country governments were increasingly caught between reducing assistance to their poorest citizens and risking their broader development agendas.
The report recommends moving away from broad, untargeted subsidies towards temporary support directed at vulnerable households. Such measures could help governments concentrate limited resources on people most affected by rising living costs.
However, the agency also stresses that domestic reforms alone may not be sufficient for countries facing severe financing constraints.
It is calling on multilateral lenders, donors and development partners to expand access to affordable financing so governments can maintain essential support for vulnerable populations.
The appeal comes as international financial institutions and their member countries prepare to discuss the economic challenges confronting developing economies at the annual IMF and World Bank meetings.
For countries already struggling with high debt repayments, the central challenge is how to respond to immediate household needs without sacrificing investments in public services and long-term development.
The UNDP analysis highlights the risk that successive economic and climate shocks could reverse poverty-reduction gains, particularly where governments lack sufficient financial reserves to protect their populations.
As food and energy costs rise, the effectiveness of government responses may increasingly depend on whether limited public resources can reach the households most exposed to the crisis.
Source: United Nations Development Programme (UNDP), “No Time to Recover: Compounding Crises, Depleted Fiscal Buffers and What It Means for Developing Economies,” October 2026.
